View source for Definition:Duty of good faith

🤝 '''Duty of good faith''' — often expressed through the Latin phrase ''uberrimae fidei'' — is the foundational principle requiring both the [[Definition:Insurer | insurer]] and the [[Definition:Policyholder | policyholder]] to deal honestly and transparently throughout the life of an [[Definition:Insurance contract | insurance contract]]. Unlike most commercial agreements, insurance contracts are characterized by an acute information asymmetry: the applicant knows far more about the risk than the [[Definition:Underwriter | underwriter]], while the insurer controls the interpretation of [[Definition:Policy | policy]] terms and the [[Definition:Claims management | claims process]]. Good faith obligations exist to keep this imbalance from being exploited by either side.

📜 Historically, the duty fell most heavily on the insured, who was required to volunteer all [[Definition:Material fact | material facts]] at [[Definition:Inception | inception]] under doctrines like [[Definition:Utmost good faith | utmost good faith]]. Modern legal developments — including the UK's [[Definition:Insurance Act 2015 | Insurance Act 2015]] and evolving case law in the United States — have recalibrated the duty so that it is more symmetrical, imposing meaningful expectations on insurers as well, particularly in [[Definition:Claim | claims]] handling and [[Definition:Policy cancellation | cancellation]] decisions. Regulatory bodies such as state [[Definition:Department of insurance | departments of insurance]] enforce good-faith standards through [[Definition:Market conduct examination | market conduct examinations]] and penalty frameworks, and violations can expose carriers to [[Definition:Bad faith | bad-faith]] litigation with significant extracontractual damages.

⚖️ The practical significance of this duty reverberates through virtually every insurance transaction. For underwriters, it shapes how they gather and rely on [[Definition:Disclosure | disclosure]] information. For [[Definition:Claims adjuster | claims professionals]], it demands timely, fair evaluation of covered losses and clear communication with claimants. Carriers that embed a culture of good faith into their operations tend to enjoy stronger [[Definition:Policyholder retention | policyholder retention]], fewer [[Definition:Litigation | litigation]] costs, and more favorable regulatory relationships — making the duty not just a legal requirement but a competitive differentiator.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Utmost good faith]]
* [[Definition:Bad faith]]
* [[Definition:Duty of fair presentation]]
* [[Definition:Duty of good faith and fair dealing]]
* [[Definition:Misrepresentation]]
* [[Definition:Material fact]]
{{Div col end}}